New Concept Energy, Inc. quarterly report, Q3 FY2023

New Concept Energy, Inc. — Q3 2023 Form 10-Q Summary

Reporting period: Quarter and nine months ended September 30, 2023. The financial statements are unaudited. The company owns approximately 190 acres and related buildings in Parkersburg, West Virginia, and provides management services for its previously sold oil and gas operations. Common stock trades under the symbol GBR on NYSE American. There were 5,131,934 common shares outstanding as of November 9, 2023.

Financial performance and position

Metric	Three months ended Sept. 30, 2023	Three months ended Sept. 30, 2022	Nine months ended Sept. 30, 2023	Nine months ended Sept. 30, 2022
Total revenue	$35 thousand	$63 thousand	$115 thousand	$155 thousand
Operating income (loss)	$(50) thousand	$(26) thousand	$(145) thousand	$(119) thousand
Net income applicable to common shares	$7 thousand	$27 thousand	$18 thousand	$170 thousand
Basic and diluted earnings per share	$0.01	$0.01	$0.03	$0.03
Net cash provided by operating activities	Not separately provided	Not separately provided	$35 thousand	$147 thousand

Third-quarter revenue consisted of $25 thousand of rent and $10 thousand of management fees. Nine-month revenue consisted of $76 thousand of rent and $39 thousand of management fees.
Third-quarter operating expenses were $85 thousand, including $70 thousand of corporate general and administrative expense. Nine-month operating expenses were $260 thousand, including $219 thousand of corporate general and administrative expense.
Other income for the third quarter was $57 thousand, primarily $53 thousand of interest income from a related-party note. Nine-month other income was $163 thousand, including $163 thousand of related-party interest income.
At September 30, 2023, cash and cash equivalents were $460 thousand, current assets were $484 thousand, and current liabilities were $64 thousand, producing reported working capital of $420 thousand.
Total assets were $4.658 million, including a $3.542 million note receivable from related party, and total stockholders’ equity was $4.594 million.
The filing reports no debt or other long-term liabilities; reported liabilities consisted of $25 thousand of accounts payable and $39 thousand of accrued expenses.
Cash increased by $24 thousand during the first nine months, from $436 thousand to $460 thousand. Operating cash flow of $35 thousand was partly offset by $11 thousand of fixed-asset purchases.
Approximate net margin was 20% for the quarter and 16% for the nine-month period, compared with approximately 43% and 110% in the respective 2022 periods. These margins were supported by interest and other non-operating income despite operating losses.

Material changes versus prior comparable periods

Third-quarter revenue declined $28 thousand, or approximately 44%, primarily because management-fee revenue fell from $38 thousand to $10 thousand. Management attributed the decline to lower oil and gas selling prices.
Nine-month revenue declined $40 thousand, or approximately 26%, as management-fee revenue decreased from $79 thousand to $39 thousand; rental revenue was unchanged at $76 thousand.
Third-quarter net income decreased from $27 thousand to $7 thousand, while the nine-month result decreased from $170 thousand to $18 thousand.
Operating losses widened to $50 thousand for the quarter and $145 thousand for nine months, compared with $26 thousand and $119 thousand, respectively, in 2022.
Corporate general and administrative expense declined modestly, from $71 thousand to $70 thousand for the quarter and from $231 thousand to $219 thousand for nine months.
The nine-month 2022 results included $130 thousand of unusual other income: $62 thousand from collection of an investment previously fully reserved and a $68 thousand gain on the sale of equipment. No comparable amounts were reported in 2023.
The related-party note receivable remained $3.542 million. Its 6% note, originally due September 30, 2023, was extended to September 2025.

Liquidity, outlook, risks, and unusual items

Management states that the company’s ability to meet current cash obligations depends on cash generated by operations and collection of interest and principal on the related-party note due in September 2025. The company is evaluating additional business opportunities to increase income and cash flow.
The company’s consulting management agreement for the sold oil and gas operations provides fees equal to 10% of gross oil and gas revenue and may be terminated by either party with 60 days’ notice.
Cash balances exceeded applicable Federal Deposit Insurance Corporation insurance limits at September 30, 2023 and at times during the year.
Management established a 100% valuation allowance against deferred tax assets because realization was not considered more likely than not.
The filing identifies risks related to interest rates, financing availability, demand and pricing, competition, construction and permitting, contractual or licensing delays, property occupancy and rental rates, cost control, and cash-flow management.
Management reported no material environmental liabilities or known material noncompliance. No subsequent events requiring disclosure were identified through November 8, 2023.
Disclosure controls and procedures were concluded to be effective, and no material change in internal control over financial reporting was reported during the quarter.

Facts investors should verify

Whether the $3.542 million related-party note will be collected in full when due in September 2025 and whether the maturity extension has affected repayment terms.
The sustainability of rental occupancy and the $101 thousand annual lease arrangement covering approximately 16,000 square feet.
The continued viability and term of the oil and gas management agreement, including exposure to oil and gas prices.
Whether operating cash flow can remain positive without the unusual 2022 income items or additional financing.
The extent to which cash balances remain above FDIC insurance limits and the related concentration risk.